Evergreen’s Mission to Create Regional MSP Powerhouses Is Redefining Managed Services
… this consolidation somewhere in the middle,” says NetGain CEO Jacobson. “What I am seeing after talking to private equity groups, including our new investor Evergreen, is few investors are interested in trying to create the next national player. I find that interesting. They really are not trying to create a national presence. I have heard from three private equity groups – and I won’t name names – who believe that past attempts to do just that have not panned out that well. So, they [and others] are looking to build things and keep them to a regional standpoint.”
For its case, Evergreen looks for companies that generate at least half of their sales from MRR. (In fact, 65 percent of the sales that Evergreen companies generate comes from MRR lines of business, collectively.) Evergreen also evaluates companies on a variety of other factors, including new customer acquisition, employee retention, management tenure and ambition, and, of course, cash flow, typically calculated by EBITDA.
“The M&A market has been hot for a long time. Obviously, evaluations are high and there’s a lot of money in private equity chasing the same companies. That dynamic probably cannot last forever. I would expect in 2019 or sometime thereafter for a slowdown in deals and a decrease in evaluations. The other thing I would appeal to people to keep an eye on is interest rates,” says Sahyoun. “The ability to borrow money at a low interest is a big part of what is driving M&A activity.”
If interest rates continue to rise, expect the pace of M&A activity to slow. The same is likely true if the stock market continues to churn as it has in the past few months.
“As economic uncertainty becomes more prevalent, expect today’s furious deal pace to pause,” concludes investment guru Marty Wolf, founder and principal of martinwolf Global M&A Advisors. “Many companies will turn to private equity funds who need to invest, and [strategies to] continue to acquire new geographies and capabilities. Many more will use market conditions as an excuse to maintain status quo. Still, it’s a seller-friendly market — and we’re excited as we look ahead to 2019.”
So, too, obviously, is Evergreen.